Under new regulations, for the first time schemes designed to get around the Annual Tax on Enveloped Dwellings will have to be disclosed to HM Revenue and Customs (HMRC).
The Annual Tax on Enveloped Dwellings (ATED), an annual tax charge on companies owning residential property, came into effect on 1 April 2013 to counter avoidance of Stamp Duty Land Tax on UK residential properties valued over £2 million. Together with the changes to Stamp Duty Land Tax and Capital Gains Tax, ATED is aimed at making sure that owners of high-value properties pay their fair share of tax. It ranges from £15,000 for a property valued between £2 million and £5 million and goes up to £140,000 for properties valued at over £20 million.
The new regulations will mean that schemes designed and marketed to avoid paying this charge will now have to be notified to HMRC.
The Disclosure of Tax Avoidance Schemes (DOTAS) ensures details of schemes designed to provide users with an unfair tax advantage must be provided to HMRC, which uses the information in its compliance work. It also helps Government consider amendments to legislation.
Penalties for not disclosing a scheme are up to £1 million and penalties for users failing to report the use of a scheme on a tax return are £100 for the first failure, £500 for the second and £1,000 for subsequent failures.
Introducing changes to DOTAS, the regulations just laid build on the work from the 2012 “Lifting the Lid”consultation which looked at tackling avoidance schemes. As part of the consultation, the Government proposed revising and extending DOTAS when necessary and improving the information available to HMRC.
These changes add the Annual Tax on Enveloped Dwellings to the regime, where currently schemes designed to reduce a user’s tax bill for income tax, corporation tax, capital gains tax, inheritance tax, national insurance contributions, stamp duty land tax and VAT must be disclosed.
Four Statutory Instruments, which come into effect on 4 November, are being laid before Parliament introducing changes to the DOTAS rules so that, for the first time, schemes that avoid the Annual Tax on Enveloped Dwellings and on employment income are disclosable to HMRC.
The Statutory Instruments also enact the Finance Act 2013 changes that require users of avoidance schemes to tell the scheme promoter their national insurance number and unique taxpayer reference. The promoter is then obliged to give this information to HMRC so that the users of an avoidance scheme can easily be traced. Regulations have also been introduced to require disclosure of employment income or “disguised remuneration” schemes and, lastly, the confidentiality hallmark for disclosure has been enhanced.
Exchequer Secretary David Gauke said:
“This Government has been clear – aggressive tax avoidance is unacceptable and will not be tolerated. The regulations we are laying mark a significant strengthening of the rules and build on the considerable work we have done to tackle not only tax avoidance schemes but also the promoters of these schemes.
HMRC has been well resourced to tackle tax avoidance and has made it clear that it will pursue those who attempt to avoid their responsibilities.”